FUNCTIONS OF RBI The Reserve Bank of India performs all the typical functions of a good Central Bank.

In addition, it carries out a variety of developmental and promotional functions attuned to the course of economic planning in the country: (1) Issuing currency notes, Le., to act as a currency authority. (2) Serving as banker to the Government. (3) Acting as bankers' bank and supervisor. (4) Monetary regulation and management (5) Exchange management and control. (6) Collection of data and their publication. (7) Miscellaneous developmental and promotional functions and activities. (8) Agricultural Finance. (9) Industrial Finance (10) Export Finance. (11) Institutional promotion Bank Issue: Under Section 22 of the Reserve Bank of India Act, the bank has the sole sight to issue bank notes of all denominations. The notice issued by the Reserve bank has the following advantages: (i) It brings uniformity to note issue; (ii) It is easier to control credit when there is a single agency of note issue. (iii) It keeps the public faith in the paper currency alive; (iv) It helps in the stabilization of the internal and external value of the currency and (v) Credit can be regulated according to the needs of the business. Since 1957 the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Rs.200 Crores, of which atleast Rs.15 crores should be in gold. The system of note issue as it exists today is known as the minimum reserve system. The currency notes issued by the Bank arid legal tender everywhere in India without any limit. At present, the Bank issues notes in the following denominations: Rs. 2, 5, 10, 20, 50 100, and 500. The responsibility of the Bank is not only to put currency into, or withdraw it from, the circulation but also to exchange notes and coins of one denomination into those of other denominations as demanded by the public. All affairs of the Bank relating to note issue are conducted through its Issue Department. Banker, Agent and Financial Advisor to the State As a banker agent and financial advisor to the State, the Reserve Bank performs the following functions: (i) It keeps the banking accounts of the government. (ii) It advances short-term loans to the government and raises loans from the public (iii) It purchases and sells through bills and currencies on behalf to the government. (iv) It receives and makes payment on behalf of the government: (v) It manages public debt and (vi) It advises the government on economic matters like deficit financing price stability, management of public debts. etc. Banker to the Banks: It acts as a guardian for the commercial banks. Commercial banks are required to keep a certain proportion of cash reserves with the Reserve bank. In lieu of this, the Reserve bank provide them various facilities like advancing loans, underwriting securities etc., The RBI controls the volume of reserves of commercial banks and thereby determines the deposits/credit creating ability of the

banks. The banks hold a part or all of their reserves with the RBI. Similarly, in times of their needs, the banks borrow funds from the RBI. It is, therefore, called the bank of last resort or the lender of last resort. Custodian of Foreign Exchange Reserves It is the responsibility of the Reserve bank to stabilize the external value of the national currency. The Reserve Bank keeps golds and foreign currencies as reserves against note issue and also meets adverse balance of payments with other counties. It also manages foreign currency in accordance with the controls imposed by the government. As far as the external sector is concerned, the task of the RBI has the the following dimensions: (a) to administer the foreign Exchange Control; I) to choose ,the exchange rate system and fix or manages the exchange rate between the rupee and other currencies; (c) to manage exchange reserves; (d) to interact or negotiate with the monetary authorities of the Sterling Area, Asian Clearing Union, and other countries, and with International financial institutions such as the IMF, World Bank, and Asian Development Bank. The RBI is the custodian of the country's foreign exchange reserves, id it is vested with the responsibility of managing the investment and utilization of the reserves in the most advantageous manner. The RBI achieves this through buying and selling of foreign exchange market, from and to schedule banks, which, are the authorized dealers in the Indian, foreign exchange market. The Bank manages the investment of reserves in gold counts abroad' and the shares and securities issued by foreign governments and international banks or financial institutions. Lender of the Last Resort At one time, it was supposed to be the most important function of the Reserve Bank. When Commercial banks fail to meet obligations of their depositors the Reserve Bank comes [b their rescue As the lender of the last resort, the Reserve Bank assumes the responsibility of meeting directly or indirectly all legitimate demands for accommodation by the Commercial Banks under emergency conditions. Banks of Central Clearance, Settlement and Transfer The commercial banks are not required to settle the payments of their mutual transactions in cash, It is easier to effect clearance and settlement of claims among them by making entries in their accounts maintained with the Reserve Bank, The Reserve Bank also provides the facility for transfer to money free of charge to member banks. Controller of Credit In modern times credit control is considered as the most crucial and important functional of a Reserve Bank. The Reserve Bank regulates and controls the volume and direction of credit by using quantitative and qualitative controls. Quantitative controls include the bank rate policy, the open market operations, and the variable reserve ratio. Qualitative or selective credit control, on the other hand includes rationing of credit, margin requirements, direct action, moral suasion publicity, etc. Besides the above mentioned traditional functions, the Reserve Bank also performs some promotional and supervisory functions. The Reserve Bank promotes the development of agriculture and industry promotes rural credit, etc. The Reserve Bank also acts as an agent for the international institutions as I.M.F., I.B.R.D., etc. Supervisory Functions In addition to its traditional central banking functions, the Reserve Bank has certain nonmonetary functions of the nature of supervision of banks and promotion of sound banking in India. The supervisory functions of the RBI have helped a great deal in improving the methods

of their operation. The Reserve Bank Act, 1934, and I Banking Regulation Act, 1949 have given the RBI wide powers of: (i) Supervision and control over commercial and cooperative banks, relating to licensing and establishments. (ii) Branch expansion. (iii) Liquidity of their assets. (iv) Management and methods of working, amalgamation reconstruction and liquidations; (v) The RBI is authorized to carry out periodical inspections off the banks and to call for returns and necessary information from them.